Saudi Arabia has decided to offer Asian customers the biggest discount in 10 months for its crude, as the kingdom’s refineries struggle with an oversupply thanks to record-high output.
Aramco has priced its September shipments, which it announced on Sunday, to the continent at US$1.10 below the Asian benchmark. This is US$1.30 lower than the price for August shipments and 10 cents lower than estimates made by refiners and commodity traders polled by Bloomberg.
Aramco’s decision represents the latest move in what is shaping up to be a long battle between OPEC’s number-one and its biggest rival at the moment: Iran.
After in June this year Saudi Arabia raised prices for Asian customers on optimism about returning demand, which proved to be short-lived, it is now coming to terms with a reality of not just weak demand but higher competition, as Iran is fast ramping up its exports. The main destination of these exports is Asia.
Yes, Asia is no longer the oil-hungry giant it used to be. There is more than enough local supply and refineries in the region are reducing their operating rates as margins fall. Even China’s teapots, which were seen as the most promising new destination for both Saudi and Iranian crude, are cutting down production to as much as 50%, according to data from Oilchem.net cited by Bloomberg.
The market that Saudi Arabia has been flooding with oil in a bid to maintain its top position in exports is changing, and challenges abound for the Saudis, not just within OPEC but outside it, too. Just last week Pioneer Resources CEO Scott Sheffield said the company has achieved production costs of just US$2 per barrel in some of its shale plays, making this oil very competitive to the Saudi light crude.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- What’s Next For Oil - Could This Be The Start Of A Correction?
- Caspian Energy Under Threat From Terrorism
- Libya Now Back In The Oil Business – For How Long Though
